ShareHub Hotlist 2019 Review – Week 19

Another turbulent week passes with Mr Trump tweeting his way out of a China deal. There is an art to doing business with the Chinese and number one on the importance list is always do it in a way that ensures no one loses face. They don’t like public debates and prefer more honorable ways of getting deals done behind closed doors and not wide open in the media eye. Mr Trump sees things differently and his latest tweet round looks guaranteed to set back trade discussions by at least 6 months. It therefore comes as no surprise that the Chinese are already looking beyond Trump and to the next US President to form new relationships and no doubt a new trade deal. At the current rate, any successful Trump trade deal with the Chinese is likely to go the same way as Obama Healthcare. The moment Trump loses the US November 2020 Election, the chinese will be renegotiating with the next president hours later. There’s always a chance that Mr Trump gets re-elected but I think at this stage the Chinese are already beginning to hedge their bets wisely. This trade war is very different to the EU and UK Brexit talks but the end goal strategy of trying to reach an agreement is similarly based on ‘stretching out timeframes’. Keeping the clock ticking over is undoubtedly an under-rated success tool. Mrs May has run down the clock during the first 3 months of 2019 and more recently the last 2 months with pointless Labour discussions. The reality is – Mrs May is continuing the same delay tactics that she used with the EU and the EU have nothing to do with what’s going on at present. What’s she got to lose? Nothing, as she’s out the door in a matter of weeks anyway. In a situation like this, it is a wonder why she is still being allowed to run the show. Someone that has nothing to lose really should not be in charge of Brexit discussions. That said, none of the other conservative leaders look like they could do any better. Same goes for Labour and so on. These are intelligent people afterall. Which begs the question over whether they are all being completely ignorant purely to ensure that the only outcome possible is to….Put it back to the people to decide. Well, the facts are the ‘people’ decided nearly 3 years ago. It’s the politicians that have not delivered it. And that’s a poor show for democracy. The people voted. It’s the job of MP’s to deliver it. Get on with it, there is no mandate to put it back to the people.

Moving on… the surprise of the last few weeks has to be the continual ‘BUILDS’ in the US Oil Production & Inventory reports. It wasn’t that long ago that Mr Trump was asking the Saudi’s and OPEC to pump more oil to get oil prices down. The Saudi’s simple reposte was that the Oil Market is rebalancing and they are sticking to their plans. Well done them, as data is far from supporting Mr Trump’s view that we are short on supplies. Quite the opposite, we seem to be still drowning in the stuff and that is despite huge volumes being wiped out of the supply chain by Libya, Venezuela and Iran. Just imagine where we would be now if those countries were still producing at previous levels. As mentioned before on TheShareHUB, US EIA numbers seem to be a bit flaky. Unreliable would be the best description. Thus far OPEC have stuck to their quota agreement, they know what’s required to get a balanced market but for some reason, even OPEC can’t quite get there. It’s as if there is a never ending supply flooding the market that has yet to be identified. Or – it’s Oil traders creating ‘virtual’ trading pools and trading in stocks that do not exist now but may exist in the future. Mmm… that’s a recipe for a disaster if true. The biggest mystery of all is how US production continues to rise at a pace despite the rig count dropping to levels last seen some 2 years ago. Rigs mean ‘activity’. If activity is dropping, why are Oil supplies rising? It’s a puzzle that will no doubt become clearer as the year drifts along. But for the moment, OPEC are completely in their rights to stick to their plan. In fact, some might say, they should extend cuts/quotas into 2020.

Week 19 Review:

Oil focused stocks are drifting along with no clear direction and mirroring the current impasse of Crude/Brent prices. Whilst the drop has been moderate with $4pb to $5pb being shed, many equities have traded much lower. PMO is trading back at 88p after testing 108p not long ago. Tullow down from 250p to 215p. These are 15% to 20% declines. That’s significant and disconnected to Oil prices. At present the market really doesn’t like Commodities. Miners are no different. SOLG has announced a number of great news releases yet the share price does not react. After several debt/cash raises SXX looks top heavy and sp progress is likely to be slow now they are carrying many more shares in issue. Hummingbird Resources continues to under perform due to poor business performance but also compounded by a large II exiting. Capital Group sold 3% of their 12% holding, leaving a worrying 9%+ left. Fortunately, African Sustainable Fund picked up most of these shares but it’s these II swap transactions that keep prices depressed. Same has occurred on Amerisur Resources. Santander has been buying in while other II’s continue to reduce. A few weeks back Petra Diamond had a situation whereby Blackrock sold out a huge 15% holding and the price was walked down deliberately to get the last block trade away. After the II deals were completed, the price jumped by 50% from 17p to 26p. The reality is, getting elephants through small doors is 99% very damaging. II’s exit stocks for many reasons some often have nothing to do with the stocks performance. Many funds have rules for holding stocks which are of a certain value. When they fall below that level, they have to sell out. Some have a rotation policy. Some have a timeline/deadline rule. Retail investors often match share price performance to the company performance and are puzzled when they do not correlate. The truth is… sometime the market has to do its thing and that’s match buyers with sellers. A price needs to be agreed and then the trade completes. It’s that simple. Stocks that generate good news and deliver decent liquidity/volumes tend to outperform their sector even with heavy II sellers. If you have one of the latter, then you really need plenty of buyers to soak up that loose stock if you want to head higher. And there is no better tonic than ‘good news’ to bring in buyers.

Role on week 20… and some good news all round is much needed by the ShareHUB picks which in week 19 scraped back into the black. The Independent picks still looking good even after Trump’s tweetville. Don’t expect a China Trade solution anytime soon and don’t expect Trump to stop tweeting either. It’s a whole new ballgame out there for investors.

Independent top picks 2019 week-19
Guardian top picks 2019 week-19
TheShareHUB top picks 2019 week-19

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